Malaysia Plans $9.9 Billion Sukuk to Finance Mass Railway

Feb. 15 (Bloomberg) -- Malaysia plans to raise as much as
30 billion ringgit ($9.9 billion) through an Islamic bond
program to fund construction of a mass railway in the Southeast
Asian nation’s capital, the project’s manager said.

Dana Infra Sdn., a finance ministry company created to fund
infrastructure development, will sell ringgit-denominated
Islamic notes, or sukuk, with maturities of as much as 65 years,
Azhar Abdul Hamid, chief executive officer of Mass Rapid Transit
Corp., said in an interview late yesterday. It will initially
take a bridging loan of 500 million ringgit from a consortium of
banks to cover early building work, he said.

The sale of the bonds will help satisfy demand among
insurers and banks for longer-maturity debt after companies in
Malaysia issued a record 75.6 billion ringgit of sukuk last year,
with 88 percent due in less than 10 years, according to data
compiled by Bloomberg. Other local firms may also need to raise
funds as part of a government-backed $444 billion plan to build
railways, roads and power plants over the next decade.

“The Dana Infra program will allow investors, especially
insurers, to extend their asset duration,” Michael Chang, who
oversees $1 billion as head of fixed income at MCIS Zurich
Insurance Bhd. in Kuala Lumpur, said in an interview today.
“Demand for such bonds will be healthy because long-dated
Islamic paper are rare.”

Sovereign Backing

Dana Infra “will sell 20 billion ringgit to 30 billion
ringgit of sukuk in three to four months,” Azhar said.
“Getting funding isn’t a problem as we have government
support.” The bonds will likely receive a AAA rating from local
rating companies due to sovereign backing, he said. Irwan
Siregar, deputy secretary to the treasury, wasn’t immediately
available to comment by telephone yesterday.

Malaysia’s government plans to sell 15-year Islamic bonds
for the first time this year, which will also help set a
benchmark for companies seeking financing. The planned sale by
Dana Infra follows the 30.6 billion ringgit record issue of
Shariah-compliant notes by the nation’s toll-road operator PLUS
Bhd. completed in January.

PLUS issued the debt with maturities ranging from five to
27 years. The 4.31 percent notes due in January 2021 yielded
3.88 percent yesterday, compared with 3.96 percent on Jan. 17,
according to Bursa Malaysia. The Bloomberg-AIBIM-Bursa Malaysia
Sovereign Shariah Index, which tracks the most-traded ringgit-denominated debt, rose 1.5 percent this year to an all-time high
of 107.226 yesterday.

Awarding Contracts

Companies in Malaysia, the world’s biggest market for sukuk
that pay returns on assets to comply with Islam’s ban on
interest, have sold 2.9 billion ringgit of the debt this year,
according to data compiled by Bloomberg. Global sales total $6.6
billion, compared with $3 billion in the same period of 2011.

State-owned MRT Corp. is managing the 156-kilometer (97-mile) Kuala Lumpur railway that may cost 48 billion ringgit
including rolling stock, according to a government estimate in
2010. An updated costing will likely be made at year-end once
key contracts have been awarded, Azhar told reporters last week
when granting the project’s first major construction contracts
worth a total 1.74 billion ringgit to IJM Corp. and Ahmad Zaki
Resources Bhd.

The railway will ease traffic congestion in the capital and
carry 2 million passengers a day when finished, with the first
line scheduled for completion in 2016, the government said in
its 2010 report.